Fifth Element Strategy
The main advantage of the fifth element strategy is that it tells you in advance when the price will enter, so you have to spend a lot of time in front of the screen waiting for the right to get some money right away.
Main ingredients are:
- Timeframe – H1, H4
- Trading tools – fast 12 EMA, slow 26 EMA, MACD SMA 9
- Currency pairs – EUR/USD, USD/JPY, GBP/USD. USD/CHF, USD/CAD. AUD/USD, NZD/USD.
The MACD histogram shows the direction and momentum of the market.
If the MACD histogram goes from negative to positive, this is a signal of a possible upward movement in momentum.
You should wait for the 5 positive bars in the histogram to confirm momentum before entering a long position at the fifth bar (which is why this strategy is dubbed the “fifth element”; not after Luc Besson’s film).
If the MACD histogram goes from positive to negative, this means that you should open a short position (the fifth bar rule still applies).
This strategy works with hourly and 4 hour charts.
We use stochastic for this strategy with the following settings:
- Period %K = 10
- Period %D = 3
- Slow down = 3
- Price field = high/low
- MA method = simple
- Levels 20 and 80
Stochastic is an indicator that measures overbought and oversold conditions in the market.
The recommended currency pairs are EUR/USD. USD/JPY, GBP/USD, USD/CHF. USD/CAD, AUD/USD, and NZD/USD.
The basic concept of the strategy is that a range should be formed after the market stops trading.
Stochastic helps us to identify possible range formations.
We should also pay attention to the current market momentum to tell us whether we should enter long or short positions.
If the market moves up, we can enter a long position in this range.
The entry point can be found with the help of Stochastics (should be below level 20 – in the oversold area).
If the market moves down, we should enter a short position in this range.
The entry point can be found in the overbought area (above the 80 level) of the Stochastic indicator.
The power range strategy has two profit targets – the first must be taken within the range. The second target is out of range to anticipate a breakout.
Buy transaction settings (long)
- Identify an uptrend line.
- Look at the stochastic for %K and %D, watch if it moves below the 20 level (oversold area).
- Find the support and resistance of the range. You can open long positions when the stochastic leaves the oversold area (crosses the 20 level).
- You should aim for your first profit in the 75% area of the range. Stop-loss should be placed at the previous support level below the lower limit of the range.
Attention! This does not mean that you have to take a long position every time the stochastic is in the oversold area or a sell position every time the stochastic is in the overbought area.
You must identify the momentum before entering the market.